Living benefits on term insurance

By Jeff Reed

Kestler Financial Group

For at least a couple of decades now, term insurance contracts have included accelerated benefit and riders for terminal illness. We all know how they work, and all you need is a doctor to tell you that you only have 12 months to live and you can access an advance on your death benefit to do whatever your little heart desires: pay for treatment, take a vacation or anything else you can dream up.

The problem from the insured's perspective is that this usually ends up with them dying. While we all have to go sometime, this is not exactly a feature that most agents talk up, probably for that very reason.

Fast forward to today, however, and perhaps things change a little, if not a lot. With the proliferation of additional accelerated benefit provisions for long-term care, chronic illness and critical illnesses there are more reasons to talk about, and make the recommendation to purchase, a product with these features. While these new accelerated benefit features were introduced almost exclusively on permanent products in the early stages, they are now available on term contracts — and that just expanded the market for them dramatically.

All those clients who were unwilling to pay for long-term care? They are now prospects. Did they readily admit the need and simply could not afford it? Again, they are now back in the market, so to speak. Of course, these chronic illness riders are not true LTC policies, and we need to be a bit thoughtful in how we talk about them as a result. However, the triggers (being unable to perform two of the 6 ADL's or requiring substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment) are virtually identical. A major difference is how benefits are paid; annual payments on an indemnity basis. That's right. Get all your money in one lump sum once per year until the benefits are exhausted.

Exhausted benefits are also an item that needs to be covered in depth with the client. While there will be a small residual death benefit paid to the beneficiary when the insured does pass, it is entirely possible, or even likely based on the typical duration of care, that virtually all of the death benefit can be accelerated away. This is completely okay as long as everyone goes in to the transaction understanding this is a possibility. Exhausting the death benefit becomes increasingly important when we are working in the other market for this product: the younger prospect with a laundry list of risk management needs and a limited budget.

The younger client can use this recently introduced product to cover not only mortality, chronic illness and critical illness, but disability as well. There is a limited amount of disability income coverage available as a separate rider. The addition of this rider essentially makes this a risk management Swiss Army Knife for the younger client. Sure, as their income increases the plan is to beef up their coverage with stand-alone policies, but until then, this coverage is far better than no coverage.